The Harley-Davidson Narrative Is Bigger Than Tariffs Alone

HOG's decline as one of the top dogs within motorcycles seems to be a slow bleed.

I'm not sure you can blame Harley-Davidson's (HOG) woes entirely on tariffs. Trade disputes have certainly had an effect in the short run, but it seems like an easy scapegoat for a business that has been faltering for years. The company's sales revenue had hit a plateau long before President Trump began his tariff war, and while much of the blame for this morning's earnings fell on Europe, Harley-Davidson's sales within its own domestic market have been weakening for a while. Overseas attempts at expansion don't mean much if you're getting cannibalized at home.

First quarter results included weak performance in Motorcycle revenue, only slightly offset by improvements in financing revenues. Motorcycle-related revenues decreased 12.3% year over year to $1.19 billion. Motorcycle revenue itself declined 14% to $964.5 million. Parts/accessories and general merchandising revenues declined 5.5% and 2.1%, respectively. Operating income from said revenues declined by over 37% to $108.4 million. Financing revenues did increase to $188.7 million vs. $178.2 million in Q118, but operating income from that revenue actually declined thanks to higher expenses.

Total operating income from both sides declined 29.3% to $167.1 million. Buffered somewhat by lower tax provisions, net income declined 26.7% to $127.9 million. On a diluted basis, that breaks down to $0.80 per share vs. $1.03 in Q118.

Overall, I just see continual downside here. When you look at HOG's performance year to year there's a very clear trend in the wrong direction. Sales are simply not what they used to be, and it's showing in the company's performance. In the first quarter, U.S. sales declined 4.2% to 28,091 bikes. In fact, sales declined across every segment. EMEA, the second largest market for Harley-Davidson, experienced sales declines of 0.6% to 10,797 bikes. In all, international sales declined 3.3% in the first quarter.

I agree that tariff disputes certainly do play a role right now, especially in terms of supply costs, but revenues have been stagnant for quite some time. Since 2014, HOG's revenues have failed to reach the $6.23 billion in sales done that year. Incomes have been weak as well as the motorcycle maker tries to find a way to reinvent itself without alienating the loyalists.

On the bright side, the company has a full stack of cash on hand. The balance sheet held $749 million in cash/equivalents at the end of the quarter, and total equity remains at nearly $1.8 billion. Indeed, Harley-Davidson's decline as one of the top dogs within motorcycles seems to be a slow bleed. And there is still plenty of time to change the narrative. The problem is they haven't seemed to make any progress.

To me, the ever consistent decline in financial performance outweighs the retained strength of the balance sheet. Harley Davidson simply isn't putting anything together that can create meaningful momentum for the share price. To that end, I see no reason to view HOG as a "buy" at this time. The dividend of 3.76% does give it some merit as a "hold" for those that believe in a long term turnaround, but they've yet to really give us a strong sign that the turnaround will be any time soon.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Dave Butler had no position in the securities mentioned.

There's little in the report or technical picture that makes me want to rush into FL.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation.
If you have questions, please contact us here.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.